income tax calculation

According to a recent survey, around 57% of income-earning Indians remain within the tax-free slab. Thus, the proportion of individuals bearing income taxes every year is significantly limited.

  • The survey reveals that only around 1.5 crore citizens of the country pay income taxes.
  • Considering the country’s significant population, this small number of taxpayers represents barely 1.6% of adult earning members demarcated over 20 years of age.

Nevertheless, tax-paying individuals need to mandatorily comply with annual income tax payment as per their applicable slab. On the same lines, it is also essential to evaluate how taxes are calculated to remain mindful of one’s tax liability. Thankfully, they can use dedicated financial tools like an income tax calculator to assess their liabilities more effectively. Tax calculation is, however, dependent on the regime followed, requiring individuals to know the succeeding comparison.

Income tax payments: Old vs new regime

As of 2020, Indians can choose to evaluate their taxes under the old system or a new regime as introduced in the current fiscal’s budget. This brand-new system was introduced to expedite and simplify the tax filing process. However, in the process of doing so, the government eliminated several key tax concessions and rebates.

For instance, tax saving on home loan was severely hampered under this new regime, thus impacting the tax liability calculation as well. Taxpayers under this regime cannot claim benefits under Section 24 of the Income Tax Act (ITA) when it comes to housing loan interest payment for self-occupied properties. Other deductions, which have been scrapped under this new regime include –

  1. House rent allowance.
  2. Standard deduction of Rs.50,000 for salaried individuals.
  3. Leave travel allowance.
  4. Deductions under Section 80TTA/TTB.

Taxpayers assessing their liabilities under the old regime can still benefit from these concessions. However, they may need the professional assistance of a tax consultant when filing income taxes. Additionally, using an income tax calculator can be a wise decision to proceed with such computation.

Different tax slabs under the new and old regimes

Knowing about saving taxes when availing a home loan and such other tax-saving opportunities adds leverage to cut down on the overall tax liability. However, before doing so, one should be aware of the different income tax slabs under the two regimes to identify tax implications on his/her income. Note that both these regimes follow the system of progressive taxation.

  • Tax slabs under old regime

Assessees under this regime need to follow the slabs mentioned below when computing taxes –

  • No taxes for an income of up to Rs.2.5 lakh per annum.
  • Income between Rs.2.5 lakh and Rs.5 lakh accrues taxes at 5%.
  • Individuals earning between Rs.5 lakh and Rs.10 lakh will pay tax at 20%.
  • Taxpayers with income over Rs.10 lakh need to pay taxes worth 30% of their taxable income.

On top of this, taxpayers can claim concessions on their interest earnings, loan repayments, and more. For example, housing loan borrowers can avail sizable home loan tax exemptions and benefits on both principal and interest repayments. An income tax calculator can help determine one’s yearly tax liabilities after considering such rebates and discounts.

  • Tax slabs under the new regime

If one decides to follow the new regime of taxation, he/she will need to stick to the following slab rates –

  • No income tax liabilities for individuals with yearly earnings of up to Rs.5 lakh.
  • Income taxed at 10% when it ranges between Rs.5 lakh and Rs.7.5 lakh per annum.
  • Those with earnings of Rs.7.5 lakh to Rs.10 lakh need to pay taxes at 15%
  • The applicable tax rate is 20% for those with income in the range of Rs.10 lakh to Rs.12.5 lakh.
  • For individuals with earnings between Rs.12.5 lakh and Rs.15 lakh per annum, tax is calculated as 25% of their taxable income.
  • Tax payment for income above Rs.15 lakh applicable at 30%.

Also, assessees would be unable to claim tax rebates or benefits from several sections under this new regime. For instance, if one resides in the property for which he/she is currently repaying a home loan, the taxpayer would not be eligible to acquire benefits under Section 24 of the Income Tax Act.

Sticking to the old regime though, he/she can claim a deduction of up to Rs.2 lakh on the housing loan interest payments and up to Rs.1.5 lakh on principal repayment during a fiscal year.

Example of income tax calculation

Consider such a calculation where an individual seeks to evaluate income tax obligations under the new regime. His annual income is Rs.6 lakh. Now, as per the slab rates under the new regime, this individual would need to pay taxes at 10%. Therefore, the best way to determine his income tax liability would be to determine his taxable earnings.

Tax-free income under the new regime is Rs.5 lakh. Therefore,

Taxable income = Rs.6 lakh – Rs.5 lakh = Rs.1 lakh

Income tax amount = 10% of Rs.1 lakh = Rs.10,000

Rs.10,000 will be the tax payable in such a case if the taxpayer is not eligible for additional tax benefits or rebates.

For complicated calculations, using a specialised income tax calculator can help. For example, to assess housing credit tax-saving opportunities, one can use a home loan tax benefit calculator.

Various tax benefits for home loan borrowers

Availing a home loan qualifies the borrower to acquire several tax-saving benefits. For instance, Section 80C offers deductions of up to Rs.1.5 lakh on principal repayment of a housing loan.

Similarly, under Section 80EE, first-time homebuyers can avail an additional deduction of up to Rs.50,000. These represent some of the popular tax-saving advantages offered by home loans today, making home loans one of the most sought-after funding options in the country.

  • The home loan market witnessed a 12.3% growth y-o-y by the end of July 2020.
  • At that time, the total outstanding housing loan amount was Rs.13.48 trillion.

Such benefits, in addition to pre-approved offers, ensure a simplified and time-saving loan application process. You can check your pre-approved offer, available on advances like loans against property and home loans, by submitting your name and phone number.

Regardless of one’s tax slab or annual income, using an income tax calculator can provide extensive insight about such mandatory liabilities. It can also help individuals plan tax payments effectively.

By Mayank

Leave a Reply

Your email address will not be published. Required fields are marked *